Higher interest rates and a strong AUD are here to stay

A SUSTAINED mining and energy boom could transform Australia into a high interest rate economy and cause a shortage of capital for industries not involved in the resources sector, one of the nation’s most senior bankers has warned in a report in The Age

”Even as the Australian dollar has slipped back under parity, the growth cycle is also likely to keep upward pressure on the currency,” said Phil Chronican, the head of ANZ’s Australian businesses.

”It’s a big change in the structure of the Australian economy,” he told BusinessDay.

“If we have such a material lift in our exports of gas and iron ore over the next 10 to 20 years, particularly during the investment phase, that’s going to starve capital from other sectors.”

Those operating in other industries will need to prepare for this.

”If you’re a manufacturing exporter, in tourism or education or an area where you’ve benefited from having a relatively weak Australian dollar – its going to be hard,” he said.

”You can’t assume that we’ll be back to 70 US cents [in the] dollar and 4 per cent interest rates”.

What does this mean for property investors?

It means that property investors need to budget for higher interest rates and while this may affect first home buyers, it will not affect the more affluent suburbs as much as people living there in general tend to have higher disposable incomes.

A higher interest rate environment also means more tenants and potentially higher rents. I’ve invested through periods of high interest rates in the past and they were good for those property investors who budgeted for them, but disastrous for those who hadn’t.

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au

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